The first wave of a new type of 529 savings account is opening this month and will allow some Texans with disabilities to save money and not risk losing government benefits.
As many as 300,000 Texans and up to 6 million Americans could qualify for the new accounts, called 529A, or ABLE, accounts.
“This touches a lot of lives,” said Dennis Borel, executive director of the Coalition of Texans with Disabilities. “Every person with a disability has a family.”
In 2014, Congress passed the Achieving a Better Life Experience (ABLE) Act, allowing a tax-advantaged savings option for Americans diagnosed before age 26 with disabilities. Last year, the Texas Legislature unanimously approved and Gov. Greg Abbott signed its version of the act, as did most other states.
ABLE accounts will allow individuals to save for qualified expenses not covered through federal programs, like eyeglasses, dental care and wheelchairs.
Accounts can be funded by the holder or through financial gifts from family and friends. Growth and distributions from the accounts are tax-free if used for qualified expenses, according to the IRS.
The accounts are modeled after the 529 education savings accounts, which are state-sponsored investment programs that allow tax-free savings for higher education needs. Federal legislation approved last year expanded the ABLE rules to allow consumers to choose a 529A plan sponsored by any state, similar to the education accounts.
We tried to make it as low-cost as possible.
Deborah Goodkin, program manager at First National Bank of Nebraska
The first to offer the new accounts was Ohio with its STABLE account opening on June 1. The plan costs $5 a month for out-of-state customers with an asset-based fee of 0.45-0.60 percent, depending on the account investments.
Tennessee followed in mid-June with its ABLE TN account. With no maintenance fees, Tennessee’s plan has an asset-based fee of zero to 0.63 percent, based on the investments chosen.
Nebraska will open its ABLE account, the Enable Plan, on June 30 through First National Bank of Nebraska. In North Texas, the bank has branches in Frisco and Plano under the name First National Bank Southwest.
Like the plans in Ohio and Tennessee, Nebraska’s Enable Plan will be offered nationwide, said Deborah Goodkin, program manager at First National for Enable.
“We’re the largest privately-owned bank in the country and the founder wanted to do it,” Goodkin said. “We’ll probably lose money on it initially. It’s not for the money, but the community.”
Those who sign up for the Enable Plan either online or by mail will have a choice of three underlying Vanguard funds, similar to a typical 529 plan. The funds will be designed for growth, moderate or conservative investments, Goodkin said. In the fall, a checking account with debit card will be linked to the program.
There is no cost to open the account, which must start with a minimum $50, nor are there costs to make a deposit or withdrawal, Goodkin said. But the account does have a $50 annual fee as well as an asset-based fee of 0.50-0.56 percent. There is also an FDIC-insured bank savings account option.
“We tried to make it as low-cost as possible,” she said. “We spent a lot of time with families with disabilities to learn what they needed.”
Educating the public on the plans will be a task, and early adoption rates are expected to be low, Goodkin said.
Nebraska sought to make the plan as simple as possible, said Don Stenberg, Nebraska state treasurer.
“Through it all, First National Bank and the treasurer’s office have been committed to building a program to address the unique needs of our future account owners, keeping in mind convenience, ease of use and cost,” Stenberg said. “Our shared vision has been to create a program that can be understood and used by a broad range of people with disabilities and their legal representatives with minimal paperwork.”
Similar 529As are planned later this year for Texas, said Chris Masey, public policy fellow with the Coalition of Texans with Disabilities.
In addition, there is legislation in Congress to expand the program up to age 46 for the disability designation to qualify for the accounts, he said.
But the IRS has yet to come out with guidelines for expenses, and Masey warns that opening an account too early in the adoption phase could lead to problems.
“If you absolutely need an account today, go ahead and open one,” he said. “You could always shut it down or roll it into another account that opens later.”
For a national look at ABLE accounts as they become available, go to www.AbleNRC.org.
Kevin Lyons, a spokesman for the Texas comptroller’s office, said Texas has set up a website at www.TexasAble.org, but the program is still being formulated.
“We’re still in the process of getting the ABLE product implemented,” he said. “Texans can enroll in other programs.”
Those who qualify will be able to save up to $14,000 a year, for a total of $100,000, before risking the loss of federal benefits such as Supplemental Security Income or Medicaid. Currently, Medicaid and SSI recipients can only have $2,000 in savings before benefits are suspended or cut.
Teresa McUsic’s column appears Saturdays. TMcUsic@SavvyConsumer.net